Australia

Details

  • Industry: Financial Services, Banking
  • Type: Press release
  • Date: 5/11/2012

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Solid results but banks need to position for change: KPMG 

Australia’s major banks (the majors) have posted another solid profit for the 2011-2012 full year however challenges lie ahead as they position for a shifting banking landscape. They are manoeuvring their businesses through a new paradigm where tougher regulation, a weaker economy and changing consumer behaviour converge.

The majors’ cash profit after tax of $25.2 billion for the 2011-2012 full year, was up 3.7 percent from last year’s cash profit of $24.3 billion, reflecting healthy domestic performance, according to KPMG's survey of Major Australian Banks Full Year 2012, released today.

 

The increase in profit was achieved in an environment of reduced margins and increased impairment charges. These were offset by volume increases at both a net interest margin and other income level. Statutory profit before tax was $33.0 billion for 2012 compared to $32.0 billion in 2011.

 

KPMG’s Head of Banking, Asia Pacific, Andrew Dickinson, said the banks are facing one of their toughest periods in decades. “Bank management teams are walking a tightrope, trying to deal with elevated funding costs and higher regulatory burdens in the face of a weakening economy, where impairments are increasing, and growth is challenging.”

 

The majors’ margins averaged 2.17 percent down from 2.24 percent in the prior year. This reflects the ongoing competitive pricing of domestic deposits and the impact of holding higher stocks of liquid assets. “These results demonstrate the challenge the majors’ face in repricing their loan books in an environment where regulatory and market pressures require an increased share of funding from retail deposits,” said Michelle Hinchliffe, Head of KPMG Financial Services.

 

The Australian major banks’ ROE is an average of 16.0 percent compared with 16.7 percent full year 2011. “Bank profit increases are unable to keep pace with increased capital requirements, so the return to shareholders is decreasing,” said Mr Dickinson.

 

Asset quality has remained strong although loan impairment charges increased from $5.3 billion to $6.2 billion. “The increased impairment charge reflects weak economic conditions in the UK impacting NAB’s overseas operations and some initial signs of stress in the domestic business banking sector,” Ms Hinchliffe said.

 

The performance of Australia’s major banks for the remainder of 2012-2013 will depend largely on how they change operating models to respond to this changing landscape. There are many onerous regulatory deadlines looming, the economic outlook is subdued, and pressure to provide more efficient distribution platforms to a changing customer base is increasing.

 

“They must make structural changes to improve productivity, building on the tactical work they have done since 2008. This may involve restructuring their branch network, redesigning processes and investing in platforms that enable cheaper distribution of services and transactions,” said Mr Dickinson. 

 

“The banks need to respond to the regulatory landscape and continue to provide adequate returns to shareholders. The market is getting even tougher, they must do more than evolve, the quantum and pace of change needs to significantly increase,” said Ms Hinchliffe.

Media enquiries

Kristin Silva

Head of Public Affairs

KPMG in Australia

+61 2 9335 8562, 0411 110 953

ksilva@kpmg.com.au

Avilyn Tan

Communications Manager

KPMG in Australia

+ 61 3 8626 0943, 0428 435 095

avilyntan@kpmg.com.au

 

Major Australian Banks Survey Year End 2012

Major Australian Banks Survey Year End 2012
KPMG's 2012 Financial Institutions' Performance Survey includes coverage of the major Australian banks.